Government identifies potential risks in Vedanta's demerger, company offers corporate guarantees according to news report.
In a significant turn of events, the Centre has expressed reservations about Vedanta's proposed demerger at the National Company Law Tribunal (NCLT). The Indian conglomerate is seeking to split into four listed companies: Vedanta Aluminium Metal Ltd., Talwandi Sabo Power, Malco Energy Ltd., and Vedanta Iron and Steel Ltd.
The government's concerns stem from allegations that Vedanta has not been transparent about its financial status. According to the Ministry of Petroleum and Natural Gas, the demerged entity of Malco Energy is likely to go into liquidation, making the recovery of government dues 'virtually impossible.' This claim comes as Malco Energy, as of March 2024, has assets of only Rs 29,000 crore and a negative net worth.
The Centre has also accused Vedanta of misrepresenting sanctioned hydrocarbon blocks as assets. The company has taken 'massive loans' on these blocks without the government's approval, raising concerns about the financial health of the proposed new entities.
The government's arbitral dispute with Vedanta involves claims of over Rs 5,900 crore. The Centre alleges that these claims were not disclosed by the company, leading to concerns about the company's presentation of a rosy picture. The Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), and certain creditors have also raised objections to the Vedanta demerger plan during negotiations at the NCLT.
Despite these concerns, Vedanta maintains that all creditors and stakeholders have agreed to the demerger. The company is ready to provide corporate guarantees to secure government dues, aiming to alleviate the government's concerns about the recovery of its funds.
The government, however, argues that Vedanta's asset coverage would fall sharply if the demerger proceeds. The company's total assets are worth over Rs 2 lakh crore, which is 12.3 times higher than its demand of Rs 16,000 crore. This raises questions about the financial stability of the proposed new entities.
The demerger scheme has been listed for final hearing on October 8, 2025. Notably, SEPCO has withdrawn its intervention application. The government, although not rejecting the demerger scheme outright, is not in support of it either, highlighting the ongoing debate surrounding this significant corporate restructuring.
